Income Tax Act 2025: Section 121 for Tax Year 2026-27

Submission of return for losses

[Section-121 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Irrespective of anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under section 263(1), shall be carried forward and set off under section 111(1) and 111(2), or 112(1), or 113(2), or 114(2) or 115(1).

FAQs on Section 121 of Income Tax Act 2025

What does Section 121 of the Income Tax Act, 2025 deal with?
It deals with the requirement of filing a return under section 263(1) to be eligible to carry forward and set off losses under specified sections.

From when is Section 121 effective?
Section 121 is effective from 1st April, 2026.

Is it mandatory to file a return to carry forward losses?
Yes, losses must be determined based on a return filed under section 263(1) to be carried forward.

Which losses cannot be carried forward under Section 121 if return under section 263(1) is not filed?
Losses that have not been determined in pursuance of a return filed under section 263(1) cannot be carried forward.

Can losses be set off in the current year without filing a return under section 263(1)?
Section 121 specifically restricts carry forward and set off in future years, not intra-year set-off. However, the return filing under 263(1) is still essential for determination.

Which sections are affected by Section 121 in relation to loss carry forward and set-off?
Sections 111(1), 111(2), 112(1), 113(2), 114(2), and 115(1).

If a taxpayer misses filing the return under section 263(1), can they claim losses later?
No, if the return is not filed under section 263(1), the losses cannot be carried forward and set off later.

What is the implication of the phrase “irrespective of anything contained in this Chapter” in Section 121?
It means Section 121 overrides any other provision in the same Chapter that might suggest otherwise.

Does Section 121 allow for any exceptions to the filing requirement under section 263(1)?
No, it strictly disallows carry forward of losses unless the return is filed under section 263(1).

Does Section 121 also apply to unabsorbed depreciation or other allowances?
Section 121 specifically refers to losses and does not mention unabsorbed depreciation or other allowances.

Can a revised return under section 263(3) validate the carry forward of losses if the original return was not filed under 263(1)?
No, Section 121 requires that the loss be determined from a return filed under section 263(1), not under 263(3) or any other subsection.

Does Section 121 apply to all categories of taxpayers?
Yes, it applies universally, as there is no exemption provided based on taxpayer category.

Are there any penalties under Section 121 for not filing the return?
Section 121 does not impose penalties but denies the benefit of loss carry forward and set-off.

Can the return under section 263(1) be filed after the due date to claim loss carry forward under Section 121?
No, late returns do not satisfy the condition of determination required under Section 121.

Is an audit under other sections sufficient to allow loss carry forward without a return under section 263(1)?
No, even audited financials cannot replace the mandatory filing requirement of section 263(1).

Does Section 121 affect business loss, capital loss, or both?
It affects any loss referred to under the sections mentioned (111 to 115), which may include business and capital losses.

Is it necessary for the return filed under section 263(1) to be accepted by the Assessing Officer to allow loss carry forward?
Yes, the loss must be determined in pursuance of the return, meaning it should be accepted or assessed accordingly.

Can carry forward of losses be claimed during assessment or appeal if return under section 263(1) was not filed?
No, the right to carry forward losses is lost if the return under section 263(1) is not filed.

What is the purpose of Section 121 in the scheme of the Act?
To ensure that only those taxpayers who comply with timely return filing under section 263(1) are allowed the benefit of loss carry forward and set-off.

Can losses from specified business or speculative business be carried forward without filing under 263(1)?
No, Section 121 applies irrespective of the type of loss if covered under sections 111 to 115.